Sources of Revenue

What is CAMPFIRE revenue?Under the 2002 Guidelines CAMPFIRE revenue is defined as, “the gross revenue that accrues directly or indirectly out of a community-managed, natural resource”. The gross revenue from the following activities should be treated as CAMPFIRE revenue and be disbursed according to the 2002 CAMPFIRE Revenue Guidelines.

How is CAMPFIRE revenue generated?The general CAMPFIRE model is that the RDCs, or community trust, lease out business opportunities based on natural resources, to private sector partners. Most of the revenue earned is from wildlife-based activities. Of the wildlife-based activities, over 90% of the revenue is from trophy or sport hunting leases with commercial safari operators. The balance of the revenue is from leases for other forms of tourism, the sale of hides, ivory and other animal products. Since the year 2001 CAMPFIRE has actively sought to diversify the programme to include revenue from other sources.

How much revenue has been earned so far? Between 1989 and 2001 (inclusive) the income earned by RDCs with Appropriate Authority has been Z$454 million or US$20 million. The highest income achieved was in 1999 when districts received additional revenue from CITES approved ivory sales.

How should RDCs choose a private sector partner?There are a number of different methods for selecting a private sector partner. These are:Negotiation and Roll-Over: Where the RDC, the producer community and the private sector partner (safari operator) are happy with an existing arrangement, at the end of the contract period all parties may simply agree to extend the period of the contract. This is called a “roll-over”. The RDC, in consultation with the producer community, must first analyse the financial performance of the contract and assess what changes need to be made in terms of lease fees to accommodate changing economic circumstances. All parties then need to sit down and negotiate any changes to the specifics of the contract.

Advantages – when a contract is “rolled-over” all parties have the opportunity to build on the trust and good working relationship already established, instead of having to start developing new relationships with new partners. It is also less expensive, in terms of time and money, as no further research has to be undertaken to find a new partner.

Disadvantages – Negotiations between all parties for the roll-over must be completely open and transparent to avoid accusations of corruption. Unless charges are reviewed producer communities could also lose out on earning more from their natural resources.

Postal Tender Only: Potential private sector partners are required to complete a standard tender document, which is returned to the RDC by post before a stated closing date. These tender documents are then opened and examined by a “tender selection committee” to assess which tender response is the most competitive. The lease is then awarded to the most competitive operator. There is no contact between the RDC selection committee and the potential safari operators.

Advantages – If the postal tenders are well thought out and well designed they can be an excellent tool for gathering all information on potential operators effectively. Good postal tenders also help speed up the selection process.

Disadvantages – Postal tenders can be too simplistic and do not allow for a well-judged evaluation of the tenders. This can lead to allegations of corruption, as not all the relevant facts are available.

Postal Tender and Interview: This is a combination of the postal tender method whereby tenders are submitted by post and the tender selection committee then draws up a shortlist of potential private sector partners to be interviewed by the committee. This allows the committee to assess the potential partner at face value as well as through studying of the submitted proposal.

Advantages – A more thorough assessment of potential private sector partners is possible through prior background checks and the interviews. The applicant's character can be determined and all parties have the opportunity to discuss details of their plans and proposals. Sometimes during the interview process potential private sector partners have increased their bid in order to become more competitive.

Disadvantages – There is a time and money cost to having the extra step of the interview. Producer communities are not directly involved in interviews and final selection often leads to accusations of corruption and imposed choices.

Public Auction: The lease of the natural resources to a private sector partner is offered to the highest bidder at a public auction. An auction needs to be organised by the RDC and the producer community in a public place. All potential private sector partners must receive notification of the auction well in advance in order to ensure good attendance at the auction. The potential private sector partners then compete against each other to offer the highest price.

Advantage – The public auction is a highly transparent means of selecting a private sector partner. All bids are made known publicly. It is efficient, in terms of time, and is a very effective way of maximizing income from a lease.

Disadvantages – There is always the risk of the highest bidder then being unable to come up with the money for the lease by the due date. In other words, the winner “defaults” on his payment and the whole selection process has to start again. The public auction does not allow for a good evaluation of the technical capabilities or character of the auction participants. Furthermore, it does not allow the producer communities to participate in the process, except as spectators.

There are four principles that RDCs and/or producer communities should follow when establishing a relationship with a private sector partner. These are:

Competition : Do not accept the first offer that is made. Creating competition between potential private sector partners will increase the revenue to RDCs and producer communities.

Active Participation : The decisions over which partner to select should be made by those most affected by the decision. This means that members of the producer communities should be well represented in the decision making process.

Openness : To avoid any suspicion of corruption, the process must be conducted openly. This means that procedures laid out in the RDCs' Financial and Administrative Handbooks should be followed. Outside agencies, such as the CAMPFIRE Association, service providers or even other RDCs, can be used as independent monitors.

Planning : It is very important that RDCs and the respective producer communities jointly plan the process from start to finish. They must then allow themselves enough time to complete each stage of the process. Too often important stages are missed or only partially completed because of poor planning. This reduces revenue.

Why is a written contract important?

The written contract is the foundation of the relationship between the RDC, its producer communities and the private sector

What needs to be covered in the contract?

Before starting to look for a partner, RDCs and producers should agree on the broad outline of the contract. Key issues that must be included in the contract are:

• The financial structure• The duration of the contract• The activities to be undertaken• Community development services such as training, employment, etc• Monitoring and reporting systems• Frequency and type of reporting required• Relationships with other private sector activities• Relationships with leaders• Penalties for non-compliance/non-performance• Termination, renewal and close out procedures

Above all, RDCs are strongly advised to get technical and legal advice before concluding a contract, especially if the revenue involved is significant. A standard contract has been developed for use by RDCs.

There are four basic types of contract. These are:

Single lease fee : This is a single sum paid per annum. It is not dependent on the quantity of the resource that has been used. Although simple to administer, it will probably not maximise revenue to the RDC and producer communities.

User fees : Under this option, the private sector partner pays for each unit of the natural resource used - for example a trophy fee or logging fees. This is a simple system to administer and makes a direct link between the producer community and the natural resource.

Percentage of gross revenue : Under this option the RDC receives a fixed percentage of the gross revenue earned by the private sector partner. The contract must be based on gross revenue rather than net income, which will be affected by the partner's costs and efficiency. It is important to very clearly define exactly how gross revenue is calculated, so that at the end of the year there are no arguments. In addition, the contract should always include a minimum annual payment. This will provide the RDC and producer communities with a guaranteed income annually.

Joint ventures : There is no standard model for joint ventures and these are negotiated on a case-by-case basis. A joint venture is where two parties come together in a unique partnership. Under this partnership there is generally a profit incentive for the RDC. However, there is also the chance to make a loss. Experience with joint ventures has been that they take a long time to negotiate and are not necessarily more rewarding than conventional lease agreements.

There is also the option of combining the basic types of contract as outlined above. Further details can be found in the Wildlife Management Series Manual on Marketing Wildlife Leases .

How should RDCs deal with unstable economic conditions?

Over the last 12 years, CAMPFIRE has had to operate within different and difficult economic frameworks. In times of hyper-inflation and fixed exchange rates, RDCs, their producer communities and the private sector partners receive fixed (or in some cases declining) income, while costs are rising dramatically. This results in fewer incentives to manage natural resources and wildlife. The following options are presented as a menu to the producer communities and the RDCs. All RDCs should ensure that they are abreast of the prevailing economic policy and know the legal implications of the choices that they are making. Some of the financial options are:

Option One : All fees are set in US$ in the contract. The private sector partner pays all the fees to the RDC in Z$ at the official exchange rate. This option works extremely well when the local currency is stable and there is no fixed exchange rate policy. Under conditions of fixed exchange rates and high inflation this is not a good option.

Option Two : All the fees are set in US$ in the contract. The private sector partner pays all the fees to the RDC in Z $ using the most favourable exchange rate on the day of payment or an average for the period. This option works well when there is an official parallel exchange rate.

Option Three : Under most of the contracts between RDCs and private sector partners most of the payment has been in the form of ‘user fees' and the lease fee has been considered as a minimum guaranteed payment. Under difficult economic conditions RDCs are advised to restructure their contracts so that the lease fee forms between 75% and 90% of the total payment. The payment should be made in Zimbabwe dollars, based on gross earnings from previous years using a favourable exchange rate. User fees can be set in US$ payable at the official exchange rate. Contracts structured like this should allow RDCs and their producer communities to retain real gross income from the use of natural resources.

Option Four : All the fees are set in US$ and paid into a US$ foreign currency deposit account negotiated with the Reserve Bank of Zimbabwe to ensure that the RDC sells its foreign currency to its best advantage.

In these situations it is very important that RDCs keep themselves informed about changes in the economic policy. In addition, RDCs should seek advice on the best option for maximising revenue in the existing economic climate. For example, advice can be obtained from chartered accountants, lawyers, government departments, the CAMPFIRE Association and CAMPFIRE Service Providers.

Note: Since 2009, Zimbabwe has adopted the use of multiple currencies which means that all payments are now made in US dollars.

Why is it important to monitor the contract?

The contract is the basis of the relationship between the private sector and the RDC. The monitoring system should be able to:

• Record the amount of the resource that has been used at any time. For example, the number of animals killed and/or wounded.• Record the payments received and revenue due. (RDCs need to charge interest on late payments).

Who are the private sector?

One of the important lessons learned from CAMPFIRE has been that commercial activities are best carried out by a private sector partner. However, there has always been a myth that private sector partners must be urban business people. While these might be the only people who have the financial resources and skills to negotiate large leases, there are opportunities for other kinds of investors. For example, local residents can also be a private sector partner in a natural resource based project or activity. In these cases the principles of marketing the lease and the broad contract Guidelines are still appropriate.

Summary:

It is important that RDCs maximise CAMPFIRE revenue. In choosing a private sector partner the RDC should receive bids from more than one potential partner to create competition. Representatives of the producer communities must be involved in the final choice of the partner. The process should be conducted in an open and transparent manner. It is important to have a legally binding contract with the private sector partner. Leases should not be abnormally long fixing RDC/producer communities to an agreed income that will become irrelevant over the duration of the lease. Leases also cannot be too short so as to avoid private sector partner investment in the area (See lease renewal).

Time and planning must be given to this whole process.

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